As a real estate brokerage, you know that economic downturns can have a significant impact on your business. During times of recession, clients may be less likely to buy or sell property, which can lead to reduced revenue and increased competition among brokerages. To protect your business and ensure long-term success, it's important to be proactive and take measures designed to assist you in preparing for the recession in 2023.
After discussions with our brokerage partners and researching the latest economic trends, we’ve compiled the top 4 strategies top brokers are using to prepare for the recession, stay alive, and remain competitive in these tough times.
The State of The Economy In Q1 2023
Experts have been discussing a potential economic blowout in 2023, and now that we’re at the end of Q1, we can already see some devastating warning signals that it wasn’t all hype—at this stage, all businesses and individuals alike should be preparing for the recession.
According to government and large bank data sources, the US economy is expected to experience a recession in 2023, with a projected GDP growth rate of just 1%, which is down from last year’s GDP growth of 2.1%. Additionally, the Federal Reserve has indicated that they will be continuing to increase interest rates, which will lead to decreased affordability for homebuyers and potentially reduce demand for real estate, especially in combination with slow economic growth.
It’s still early in the year, yet we’ve already experienced the beginning of the impact of these trends. January 2023 alone saw more layoffs in tech than the whole first half of 2022. When tech giants like Facebook, Microsoft, Google, and Amazon continue to let go of tens of thousands of employees, it’s not a good sign. Bank failures are also a growing area of concern, especially after the fall of Silicon Valley Bank.
These economic factors can naturally have a significant impact on the real estate market. During times of recession, buyers may be more cautious and less willing to make large financial commitments. Additionally, sellers may be more hesitant to list their properties, leading to decreased inventory and increased competition among brokerages. Slowed economic growth on top of inflation means less cash in everyone’s pockets, and less buying power means a housing market cool-down.
To prepare for the upcoming recession, start with these four steps, and remember that tough times make the strong stronger. It’s not all doom and gloom—this year can mark the perfect opportunity for ambitious brokerages to rise above the competition.
Reducing Expenses Is a No-Brainer—Here Are The Biggest Areas To Cut
During a recession, it's important to tighten your budget and reduce unnecessary expenses. This could mean cutting back on advertising costs, reducing staff or office space, and exploring more cost-effective solutions for lead generation. By taking a strategic approach to your expenses, you can reduce your overhead and increase your profitability.
According to reports, the average real estate brokerage spends approximately 10% of their gross commission income on advertising and marketing expenses. By exploring more cost-effective solutions for lead generation, such as Landslo, brokerages can significantly reduce their advertising costs while still securing a steady stream of qualified leads. Instead of paying for low quality real estate leads from Facebook, or purchasing expensive leads from sites like Zillow or Realtor, Landslo provides affordable, high quality leads that come with built-in lead nurturing. Our leads have already been nurtured, qualified, and vetted, and each one has asked to be connected with a real estate agent before we send them to you.
Call Centers & Sales Agents
Most brokerages understand that with low conversion rates (around only 1%), real estate leads are too expensive not to nurture. Yet nurturing leads is costly too. Many brokers end up wasting thousands of dollars each month on call center operations and Internal Sales agents, only to see a moderate return on investment. With AI technology, this is no longer necessary.
AI has improved to the point of holding autonomous and unique conversations with leads, and because there’s no human involved, there’s no salary to pay. Cutting back on this area of your workforce is likely the single most effective way to reduce expenses and increase sales at scale. You can check out Landslo’s AI here >>
Cut Back Office Space
With costs rising, an easy way to reduce expenses is to eliminate or downsize office space. According to data, about half of all potential buyers started their home search online, and 38% of buyers used an agent that was recommended through family or a friend. Likewise, 63% of sellers either kept the same agent or found one through a referral. Needless to say, the majority of transactions are no longer started by buyers and sellers walking into a physical real estate office.
The success of virtual brokerages such as eXp should serve as a model for brokers looking to dramatically cut costs in 2023. While there’s something to be said for having a physical space where your team can get together, it may not be necessary to pay for a large office on a continuous basis.
Covid helped accelerate the rise of co-working space, which is an affordable option for holding occasional conferences, meetings, and team building events. Agents can also purchase affordable (and tax deductible) memberships that will get them a desk to work at, or they can deduct their home office space during tax time.
Diversify & Expand Your Services
During a recession, it's important to diversify your services and expand your offerings beyond just buying and selling real estate. According to recent reports, the demand for property management services is expected to increase in the coming years, as more homeowners opt to rent out their properties rather than sell them. By offering property management services, brokerages can create a new revenue stream and provide additional value to their clients.
You may also want to consider investment consulting services, home inspections, insurance, and perhaps even get creative and consider services such as home renovation and property turn over for investor clients in between tenants. One of the positive aspects of preparing for a recession is that it can bring out creativity that will expand your business into new markets.
Focus on Existing & Past Clients
In a market where fewer homes are being bought and sold, yet the same amount of brokerages exist, it’s going to get harder to win new business. Luckily, 89% of buyers and 85% of sellers would recommend an agent they worked with in the past. During a recession, it's more important than ever to prioritize your existing clients and maintain strong relationships with them. By providing excellent customer service, keeping in touch with clients regularly, and staying top-of-mind for any future real estate needs, brokerages can build trust and loyalty with their clients, leading to repeat business and referrals.
While it might feel like an operational headache to keep in touch with everyone you’ve ever worked with (or pure luck, if you’re relying on agents to make the follow up), this is not the case. Landslo offers brokers conversational AI to nurture old contacts and pull opportunities out of your database—you can check it out here >>
Build a Cash Reserve—And Get It Insured
While preparing for the recession, it's important to build up a cash reserve to help you weather any financial storms that may come your way. Reducing expenses and expanding into new markets full of opportunity are a great way to keep your margins healthy, even with less home transactions being made.
By building up a cash reserve, you can ensure that you have the resources you need to continue operating your business even in tough economic times. Yet, having cash in the bank isn’t always enough. In the event of a bank collapse, as seen with Silicon Valley Bank, your funds might not be fully insured. Now is a great time to consider exactly how much capital is in each one of your accounts and make adjustments to ensure either the government or your bank is prepared to pay out your full balance if you need to withdraw it.
In conclusion, while it's impossible to predict the exact timing or severity of a recession, it's always best to be proactive and take measures to protect your brokerage. By reducing expenses, diversifying your services, focusing on existing clients, and building (and insuring cash reserves), you can guarantee the long-term success of your business. Remember, your greatest growth happens under pressure—not comfort. So, stay focused, and keep building.